JPMorgan: How to hedge a portfolio against trade war fears

JPMorgan equity strategists tipped six hedges to shield against the market ructions caused by trade tensions.

1. It’s staying cautious on the tech sector, pointing to elaborate supply chains and a sensitivity to consumer and business confidence.

“This is especially after tech has had such a dramatic run already, tech valuations are no longer attractive, neither in Asia nor in the U.S., and
sector’s earnings power might be peaking,” it said in a note on Friday

2. Within Europe, JPMorgan said to prefer the periphery over the core, saying the DAX “screens poorly.”

“Germany has the greatest exposure to China exports, as a share of GDP, within Europe,” it said, adding a pair trade of long Italy versus short Germany will continue to deliver returs.

3. It tipped a preference for domestic plays over exporters.

4. It advised a preference for financials over cyclicals.

“Financials are less sensitive to global trade, less expensive and do not have stretched price relatives,” JPMorgan said. “In contrast, cyclicals are trading outright expensive, are sensitive to a rollover in global activity momentum, and have strongly outperformed over the past two years.”

5. It turned relatively more cautious on emerging markets versus developed markets.

6. It took a cautious stance on miners, pointing to elevated inventories, the potential for the U.S. dollar to stabilize near term and a decelerating Chinese M1.